Farmers, largely from Punjab, are protesting on Delhi’s borders. The government must deal with them rationally — study their demands and sit down with them to resolve the problem at the earliest.
The farmers’ demands include making minimum support prices (MSPs) legally binding and fixing MSPs according to the so-called Swaminathan formula — it suggested 50 per cent profit over comprehensive cost, often referred to as Cost C2. This cost concept includes not only all the paid-out costs of farmers and imputed value of family labour (Cost A2+FL), but also imputed rent on owned land and imputed interest on owned capital.
The difference between Cost A2+FL and Cost C2 is roughly 25 to 30 per cent for most crops. The current MSP formula that the Modi government has accepted is minimum 50 per cent margin over Cost A2+FL. So, if this is replaced by Cost C2 plus 50 per cent margin, in most crops covered under MSP regime, the MSPs will go up by 25 to 30 per cent.
The farmers have some other demands including loan waivers, pension for farmers and agricultural labourers, a minimum wage rate of Rs 700/day and allowing MGNREGA workers to work on farmers’ fields. Accepting them could have significant economic implications, including putting severe pressure on the fisc and raising food inflation. So, any decision on the farmers’ demands needs cool headed thinking, keeping emotions and politics out of the negotiations. It is election time and everyone tries to put pressure to get the best possible deal for their economic well being.
One thing that must be understood by policy makers negotiating with farmers is that the real issue behind these economic demands is that farmers basically want significantly higher incomes. There is nothing wrong in that — almost everyone wants a higher income with least uncertainty. The question is whether the government has the wherewithal to pay without wrecking the economy. It is difficult to put a figure on the fiscal cost of this package. It will depend upon how many of the 23 commodities the government will have to buy at enhanced MSP, the level of market prices and the amount of loan waiver and pensions. It is, however, clear that the budget for this package will be large, and it could throw a big spanner in the Centre’s fisc calculations.
So, what would be the best way to increase farmers’ incomes? Before I respond to this basic question, a few things must be noted. The 23 crops under the current MSP regime constitute only 28 per cent of the value of agriculture and allied produce. If the government agrees to raise the MSP of these 23 crops based on Cost C2 plus 50 per cent margin, and make it legally binding on all buyers, why should this formula not be applicable to other agri-products?
It would be interesting to note that the biggest agricultural produce of India is milk, and its value exceeds the value of paddy, wheat, all pulses, and sugarcane combined. Why should milk producers, or for that matter any livestock producer, or even any horticulture producer not get the same treatment as the 23 MSP crops of today? So, the demand for higher MSP will not be confined to 23 crops. Livestock and horticulture together constitute more than 50 per cent of agri-produce, and they have been growing without any MSP. In fact, their growth is much higher (5 to 8 per cent) than the growth in cereals (1.8 per cent) over the last two decades.
There is a lesson here. The future of Indian agriculture’s potential and farmers’ incomes lies more in livestock, fisheries, and horticulture. And, these commodities need a well-integrated value chain approach like the Amul model in milk or the vertically integrated poultry sector, which is actually growing at the fastest pace. The market risk is taken by the integrators.
In the 23 crops under the MSP regime, the best way to augment farmers’ incomes is to raise their productivity in a sustainable manner and enable them to access the best markets not only in India but across the world. While augmenting productivity requires a lot of investments in agri-R&D and irrigation — this takes time — the issue of access to best markets can be achieved in a relatively shorter time.
The first and foremost policy action that is needed is to remove all bans on agri-exports, stocking limits on private trade, and stop unloading wheat and rice in the open market at below the economic cost of the Food Corporation of India (FCI). These are all anti-farmer policies designed to favour consumers. The fundamental problem of today’s agri-food policies is that they are highly tilted towards consumers at the cost of farmers. This mindset needs to change, especially when the government claims that just 11 per cent of the population live under poverty.
Take the Central budget. Out of roughly Rs 47 trillion, subsidies in the agri-food space account for about Rs 5 trillion, of which 80 per cent is geared towards consumers to keep food prices low. The food subsidy of Rs 2.12 trillion and even the fertiliser subsidy of Rs 1.88 trillion (RE of FY24) is a pass on to consumers as it keeps the costs and thus MSP prices low. This entire gamut of subsidy policies needs a re-visit and reorientation where 75 per cent could be geared towards producers in the form of a price stabilisation fund or policies like PM-Kisan, and only 25 per cent goes to well targeted vulnerable consumers. It is time to stop revdis, and get on with real rational policy making. Policy makers have a big job at hand, but believe me, it can be achieved, if they have the will to do so. I sympathise with policy makers who have to balance the interests of producers and consumers.
Gulati is Distinguished Professor at ICRIER. Views are personal
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The problem of today’s agri-food policies is that they are highly tilted towards consumers
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19.02.2024
Farmers, largely from Punjab, are protesting on Delhi’s borders. The government must deal with them rationally — study their demands and sit down with them to resolve the problem at the earliest.
The farmers’ demands include making minimum support prices (MSPs) legally binding and fixing MSPs according to the so-called Swaminathan formula — it suggested 50 per cent profit over comprehensive cost, often referred to as Cost C2. This cost concept includes not only all the paid-out costs of farmers and imputed value of family labour (Cost A2 FL), but also imputed rent on owned land and imputed interest on owned capital.
The difference between Cost A2 FL and Cost C2 is roughly 25 to 30 per cent for most crops. The current MSP formula that the Modi government has accepted is minimum 50 per cent margin over Cost A2 FL. So, if this is replaced by Cost C2 plus 50 per cent margin, in most crops covered under MSP regime, the MSPs will go up by 25 to 30 per cent.
The farmers have some other demands including loan waivers, pension for farmers and agricultural labourers, a minimum wage rate of Rs 700/day and allowing MGNREGA workers to work on farmers’ fields. Accepting them could have significant economic implications, including putting severe pressure on the fisc and raising food inflation. So, any decision on the farmers’ demands needs cool headed thinking, keeping emotions and politics out of the negotiations. It is election time and everyone tries to put pressure to get the best possible deal for their economic well being.
One thing that must be understood by policy........
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